Money Masters interview with Tim du Toit

Listen to the latest podcast with Tim du Toit, where he shares about his background and how the Quant Investing Screener was born.


What you will learn:

  • What the best investment strategy is (hint: not the one with the highest returns);
  • Why Quant Investing Screener is different from other screeners and how easy it is to use it with just a few clicks;
  • How to find a strategy you feel comfortable with and how to use the Quant Investing Screener to implement that.


Below the video is a transcript of the interview with links to all the mentioned resources.



Tim, thank you very much for taking the time. Could you please tell us about your childhood? How did you grow up and what got you first interested in investing and finance in general?

Well, I grew up in South Africa and I did accounting in school, but finance was never a big thing for me. I never really knew what I wanted to do after school. So in South Africa I had to go to the army. We did two years’ of conscription and I did a correspondence course on the stock market just to see what it was like. And I really liked that. And that was about 1986 when I started that. And that eventually led me to look at investing in a more serious light.


So the first way for you to invest was probably not the way you invest right now, I suppose? How did you start?

No :) , I did all the wrong things possibly. First used technical analysis and I saw that that didn’t work. Then there’s broker recommendations. Traded a lot, but I didn’t make any money. And then I started reading about the stock market and there was a small book by a mathematician in South Africa called "Winning on the Johannesburg Stock Exchange" that got me started with looking for companies.

A very, very simple way of looking at companies, low PE, high dividend-yield companies. Look at the results a little bit and that sort of thing. A basic value investment strategy. And that’s what got me started in value investing. Well, at least a little bit of investment success then.


Let’s talk about your educational and professional background. Could you tell me a little bit about that as well?

Well, after I discovered this course, I decided to go to university. I didn’t really have a plan to go to university. And then I started BCom Accountancy, which is basically a commerce degree to become an auditor. But I saw after the first year auditing was not my thing.

Then I switched to Financial Management. I finished that. I really liked that. And then I did a Honours degree, also in Financial Management. And then I went to the USA and I did a MBA there, also Finance, Strategic Management and Marketing were my major subjects.

After that I went into the banking industry, where I worked for 16 years. First bank and country risk, then risk trading, then onto trade finance trading as well as structured tax finance for the bank.

I came to Germany about 18 years ago. The bank in South Africa had a subsidiary over here. And somebody that I knew became the CEO of the bank, and he asked me because we worked together before, if I want to come to Germany.

He organised everything and I thought it’s a nice opportunity. I haven’t been here. I didn’t speak any German. I thought for one year you can stand anything. And then I came over and it’s 18 years later and I’m still here.


Interesting. That was back in the days and now you are the brain behind Please explain what this website is about.

It started off that when I left the bank around 2012, I had access to a Bloomberg Terminal in the bank. And then after that I looked for a screener to invest my own money. I have a friend that we worked together quite closely. We looked at a lot of options and we didn’t find anything that we like. So we thought we’d build a screener to satisfy all our needs. And that’s how the screener was born.

The data is very expensive and that’s why we decided to sell subscriptions. Now we have a nice little community and I’ve made a lot of good friends through clients of our service. So that’s basically how it started. Something that we needed to invest our own money.


So, as we said before, you didn’t really start with the way that you are investing right now. Now you are engaged in quant investing, but how did that start?

Quant Investing is basically just rule based investing, right. You’re looking for a few indicators that in the past have been tested over long periods of time and gave good returns. So you use these indicators and these backtest strategies to build a strategy that you follow. I don’t follow a blind quant strategy because I’m also a value investor. So I do look at the numbers a little bit.

But it all basically started when I read the book by Joel Greenblatt, The Little Book That Beats the Market. I read that and I wanted to buy Magic Formula companies in Europe. And you couldn’t find them anywhere because there was no screener to do something like that. So that’s how the screener started off with. We wanted to do Magic Formula investing world-wide basically.

We keep on reading about new research. That’s what we write about in our blog all the time. And as we test new things, we’ve moved way beyond the Magic Formula in some of the things we use. And it’s just a question of learning and experimenting all the time. And then using the best things that work and building a strategy according to that.


For the people who are maybe not so familiar with quant investing, first of all it’s an abbreviation for quantitative investing, or very data-driven. I know that there’s also another term called factor investing. Is that the same thing or is it different?

I think it’s more or less the same thing. Maybe quantitative investing would be more blind investing where you have these rules and if a company fits the rules, you buy it.

Whereas I see factor investing as a few factors that I look at when I look for companies to possibly buy. Then I do further research because there may be some funny things in the numbers.


It’s interesting because you kind of do a mix of quant investing and of classical value investing it seems. But what are the advantages and disadvantages of quant investing compared to just a pure fundamental analysis like Buffett or Munger would do?

First of all, with quant investing you can look at a lot more companies If you look at Warren Buffett, he spent most of his life reading annual reports so he had this huge database of business knowledge. And then when he found a company that eventually got cheap enough, he bought it.

We go about the other way. We first look and see what companies are cheap and then we look at them. Are they worth buying? And that’s basically a different way of looking at it. We don’t read too much about the companies before we find them. In fact, a lot of companies that we invest in, we’ve never heard of before because they’re small companies in Japan, for example. So it’s just a different way of looking at it compared to Warren Buffett.


Would you still do a full fundamental analysis as well once you’ve found those companies?

It depends on what you mean with a full analysis. We look at five years of financial results. We’re looking to see if there were outliers in the data. We basically want to see if this company is on the screener that we ran correctly.

For example, say it’s a company that sold an office building that they owned, maybe leasing it back. So they had a huge one-time gain, it’s in their profit and loss account, in their earnings per share, so the company may look cheap. But if you look at the numbers and you calculate out the profit from this building purchase, then the company may still be expensive, right? So that’s not the type of company we want to invest in.

But if you find a company that five years of earnings is more or less stable and it’s cheap based on a lot of the rules and there’s nothing funny going on with the company, then we’ll generally buy it. We don’t buy as big positions as Buffett does, for example. I suggest that clients or subscribers to the newsletter buy about 2% of their portfolio into any one company.


So what’s the target group that you’re targeting with your website? Is it more finance professionals or private investors or both? What would you say?

We have a real broad mix of clients. We have a lot of private investors that are fed up because the banks sold them some products that didn’t really promise anything and had a huge amount of fees on, so they want to take their investments into their own hands. They read about a few strategies. They read about some of the strategies on the blog. And they find a strategy that they feel comfortable with. And they use the screener to implement that.

A lot of other guys work for big financial planning firms and they want something where they can find ideas for their customers because the screener is very easy to use. In Bloomberg you’ve got to try and program things and not everybody has access to a Bloomberg Terminal in a bank.

So we have some finance professionals and we have some fund managers. So there’s a broad mix of private and professional people.


I have seen on your website, you have the screener, but you also provide templates, let’s say, for ready-made strategies to apply to that screener. And let’s talk about those strategies. What are maybe the three most popular strategies on your website?

That’s very difficult to say because we don’t see usage statistics throughout the strategy so it’s very individually driven. For example, there was a group of Nordic investors that wanted to apply the Magic Formula to the Nordic countries. And we basically wrote something for them. It’s not a lot of work, but it makes it easier for them to get started.

They can run the strategy with four mouse and get a list of companies that meet the strategy. So we just tried to save them time and help them a little bit. And if a client has a problem, then we’ll save some strategy for him just to give him an example of what he can do with the screener.


Let’s say I’m new to your website and your screener, could you maybe say what’s the first strategies that I should maybe start with?

That very much depends on your own personal nature. There’s an article that I wrote about it. The best investment strategy is not the one with the highest returns, but it’s the one that you can stick with through up-and-down markets. It makes you feel comfortable and sleep well at night.

So the big thing is for an investor to first find that strategy. And then we can help him to implement that strategy because without that, if you don’t feel comfortable implementing the strategy, you won’t be able to stick to it.

And then it’s no use because you’ll probably abandon the strategy at the worst possible time.


I see. But maybe you can give us a rough understanding of what’s the performance of a typical strategy?

That’s a very difficult question to answer because you’ve got to look at what time period and what year. There’s never any strategy that will give you the best return compared to everything else. That you can only see if you look at past historical data. It’s just the same as you can’t say what world stock market will give you the best returns over the next 12 months.

It’s everybody’s guess and every idiot forecaster has some opinion on it, but they really have no clue.

And it’s exactly the same with investment strategies. If you follow a strategy that’s been tested in up-and-down markets in a lot of different parts of the world and it’s done reasonably well, say one of the top strategies, it’ll always give you a good return, but it may not necessarily be the best return because there may be some other strategy that out-performs it.

But you’ll never know what that best strategy is, because you can only look at it if you’ve seen historical data.


I’ve seen that your screener and those strategies are aiming at individual stocks and not ETFs. Do you consider integrating ETFs into your screener as well? And if not, why?

We’ve got ETFs. Sector ETFs and country ETFs and a sort of a report to give investors an idea of what markets and what sectors of the market is performing. We call it the Dashboard Section of the website. And that’s updated on a weekly basis where customers can see what sectors are working well in what parts of the world and what stock markets are performing well.

Apart from that it doesn’t really make much sense to implement the ETFs because you can’t really do too much with them. You can maybe apply a momentum strategy, some sort of technical analysis to it, if you want to do that. But apart from that, you can’t really do anything with them.


Let’s talk about things like transactional cost and taxes and these kind of things. Comparing picking individuals starts with your screener to using a more passive approach, investing in ETFs. What’s the impact on the strategies? Would the advantage of your strategies be minimised by those costs?

Well, there’s definitely. If you can invest your money in a ETF and keep it there for 30 to 40 years, then you have no tax implication except if there’s some sort of implied tax that the authorities calculate in terms of your investment. Compared to buying individual stocks, where if you sell them at a profit here in Germany, you’ll pay nearly 27% tax. And then you’ve got transaction costs as well, which is probably about 0.4% to sell and 0.4% to buy.

So you do have costs, but then it all depends on the performance. If you have a strategy that does, say over long periods of time, 15% to 20% and the market only does 3% or 4%, then you can absorb a lot of costs. That, of course, would not happen every year. You’ll have some really down years and some really excellent years. And how it all comes out in the end nobody knows, because you don’t know how your strategy will perform against the market.

And also, again the same classic question is you can’t say what will be the best index will be over the next 40 years. And at what point are you investing in the index? Are you buying the S&P 500 now when it’s at an all-time high? Or the Dow or whatever the case may be.

So there’s so many unknown factors that you can’t really say. But definitely there is higher cost if you implement an individual strategy in your portfolio.


Of course, if you have a small amount of capital to invest, the transaction costs have a bigger relevance for you than if you have a larger amount of capital. So what should be the minimum size of investment capital that one should have to use your strategies?

It depends. If somebody has got say €40,000 to €50,000, then they can probably start investing into individual stocks. Because remember the screener will also cost a little bit each month. And then you have transaction costs. If you buy too many companies, the investment per company gets too small. If your broker has some sort of fixed minimum amount, then that becomes really high.

So €40,000 to €50,000, I would say is a good starting point. And if your capital grows from there, then it’ll quickly get cheaper. 

I started investing with basically no money. I saved a few months and I bought one company. And then I saved another few months and I bought another company. So I didn’t start out investing in funds. I started out really small. And, of course, my portfolio was completely concentrated when I started out. But I started out with a simple value investment strategy of buying low PE companies, high dividend companies, and I could get that from the newspaper.

So I think it depends on if you want investing, if you really enjoy it and enjoy all the research and all the things related to that, then start as early as possible because it’s such a valuable skill that you can use throughout your life.

And if you combine your hobby with your retirement because say for example you retire in 50 years and you like investing in individual companies and researching businesses as I do, you can do that until you’re 90! Look at Charlie Munger, he’s still going strong. And if that interests you, then start as young as possible because then you can learn as much as possible by reading.


Sounds great. So the data used in your screener, what regions does it cover and what market caps does it cover?

It covers all market cap companies from all the developed markets worldwide. We have companies from New Zealand right up to Canada, Scandinavia, all of Europe, the UK, Hong Kong, Singapore, a few of the Asian markets. And then, of course, North America and Canada.


What’s the smallest size of company that features?

We have pink sheet companies in the US. It’s a bit frustrating because they only trade once a month or so. So you get some wild numbers in the ratios and wild price movements, but there’s no real limit.

We try to include all the companies on the exchanges, right down to the smallest one because that’s the companies where small investors have the biggest advantage. The companies that may be the most mispriced.


Let’s talk about backtests. The strategies that you feature also are with backtests. Did you conduct those tests yourself? And how difficult are those to conduct?

We’ve conducted some of the backtests ourselves. If you look on Amazon, there’s a book that we published about a big study that we did. We tested I think 168 different strategies over a 12 year period in Europe that included the internet bubble-bursting as well as the sovereign debt crisis. We wanted to find what’s the best single and best two-factor strategies in Europe. And those we did ourselves.

But backtests are really, really time consuming and more difficult than you think to do them because you have to make sure that the data is correct. It depends on what type of companies you test.

There’s a lot of biases that you want to exclude. For example, you want to make sure that the data was available in the market by the time you buy the companies.

For example, because Europe’s got a lot of companies with December year-ends, you can’t test the strategy in January because those December results would not have been out in the public yet by January, right? You’ve got to wait until at least May or June to start using the data then and then include that. And you want to make sure that there’s no survivorship bias.

All the companies that went bankrupt in this period that you’re backtesting, are still included in the screener because those are obviously bad performing companies. And if you exclude all these bankrupt companies, then the results on the backtests would look a lot better than what it would otherwise.

That’s why the website only gives you current ideas based on current information because we have a huge database of information that we use for backtests. But that’s not linked to the website at all because it’s such a huge integrated process. And we can’t just test any strategy in five or ten minutes because there’s a huge amount of work in terms of programming to query the database in the correct way to setup a backtest.

So if we find a strategy that we find really interesting, that did well in the US, then we’ll back test it and see if it worked in Europe or the whole of the world.

If it works, then we put the results on the blog. But we generally don’t update backtests because we just want to make sure if a strategy also works in Europe, if it worked in the US.

And if it worked in that time period that we tested to compare to the time period in the US, then you can probably make the assumption that the strategy will work. And that it’s a strategy worthwhile to have as one of the strategies that you consider for what you want to implement.


Would you ever consider outsourcing those backtests?



Just because you don’t want to really trust that it’s correct. Is that the reason?

Yes, exactly. Because we can check all the data. Exactly what came in and what went out. Is there anything that looks really odd in any of the periods? And what we do now is we test the strategies.

We form portfolios each month and then we calculate an average performance just to exclude possible companies that had wild performances in that period, so that we can get a really true picture of what the performance of the strategy is.

We like to control the data and make sure that we have a really good idea of what’s going on. And the database is our own that we’ve built up over ten or so years.


I know that you are aware of the book Dual Momentum Investing by Gary Antonacci. We did an interview with him recently. His strategy includes something that he calls absolute momentum, which gets you out of the market before a big drawdown.

Do you think it is a good idea to combine this absolute momentum with some of your strategies? For example, with a value strategy? And what are your general thoughts on combining dual momentum with a value investing approach? What would be the best way to do this?

 The dual momentum strategy is basically another way of timing or trying to time the market. If you look at the periods that Gary tested in the book, it works very well. So if you have those two momentum indicators that you follow, you can just follow them and then get out of the market or stay in the market with the companies you invested in.

You must just be careful as he tested it very broadly. He tested the US and then the non-US market. And he showed that the US market’s also got a lot of predictive power on the rest of the world. But say, for example, you’re buying Japanese small-cap companies, then you probably should look at the Nikkei Index to see what’s going on in terms of selling those. But it’s a very good strategy and it’s a good idea.


And to combine that with value strategy is a good idea as well?

Yes, exactly. As I said, you can buy the individual companies, but look at that in terms of market timing, for example.


In general, what’s the best way to combine different factors? For example, one way would be to do a combination model. It means that single factor portfolios are created and combined into one portfolio. Another way would be to do inter-sectional model. That means that stocks are ranked by several factors simultaneously. A third one would be a sequential model. It means that stocks are sorted by factors sequentially. Is that something that you maybe also have thought about already? What do you think? What’s the best way to do this?

If you combine different factors, they generally always give you higher returns. It’s just a question of how you combine them. In the screener you can theoretically combine an infinite number of indicators, but we make it very easy for you to combine up to four. We have four factors and then we have sliders where you can simply select what percentage of the universe you want to predict with that.

Depending on the sequence of the ratios that you select. For example you look for low PE companies first and then you look for high return on capital companies to find better quality companies, and then you look at share-price momentum as a third factor, you’ll get a certain list of companies.

But if you mix those factors up, then the list will change, but not a lot. It’s funny, you know. If you try to look for under-valued companies on different factors, it’s sort of like a lot of roads lead to Rome. You tend to find the same companies all the time. It’s very surprising actually.


What portfolio composition would you recommend when following a quant approach? As you just said that it’s good to have a combined factor approach, but of course you could also combine different strategies at the same time, I suppose. Would you say have a focus of let’s say 50% more on momentum and 50% on value and these kind of things? Have you any thoughts on this type of portfolio composition topic?

It depends on how much capital you have. Because the more strategies you run, obviously you’ve got to invest in more companies. And if your capital is such that your investment in each company becomes too small, then your trading costs or your dealing costs get so expensive.

But you can easily combine a value and a momentum strategy by, for example, looking for companies that are cheap based on EBIT to enterprise value. And then from these companies, look at the companies with the best six-month price momentum.

So it’s easy to combine value and momentum. If you combine multiple factors like, for example, value, quality, and momentum into one screen, then you’ll find companies that meet all of those criteria and you can buy those.


I guess the only problem is that afterwards you’re not really sure why your strategy performed the way it did do because of value or momentum or another factor. So if you have really separate portfolio paths, it’s easier to tell which one did perform in which way, right?

Yes, that’s possible. But I mean, if you know that a value and a momentum strategy works well, why would you want to split the strategy apart to find out if value or momentum is performing? Because the part that you invested in value, let’s say for example, underperforms, would have been 100% invested in value. So you can say, okay, so momentum is doing well now, but now what? Do I buy more momentum and you’re maybe buying at the top of the market, right? Whereas if value’s underperforming, it’s probably a great time to buy value, right? Because the companies are even more undervalued.


Recently I read the book The Acquirer’s Multiple by Tobias Carlisle. In that book, he describes a simple quantitative value investing strategy, very similar to the Magic Formula, by the way.

I contacted Tobias and asked him what he thinks about combining his value approach with the momentum investing element like absolute momentum, as described by Gary Antonacci.

His reply was that many investors combine value and momentum, but he doesn’t do so because he is a pure value investor. That answer astonished me because I don’t understand why one would limit oneself like this. What do you imagine are the reasons for him thinking this way?

Well, he likes buying cheap companies, for example, if you buy value companies that have good share price momentum, you can say that okay, the share price has turned around and it’s going up. But he likes buying companies when they’re really at the low. And I’m sure that if he invests in that strategy, he buys them at the really low point.

But that means he gets really cheap companies. Okay, they may become even cheaper, because if you have value traps, they’re just going to keep on getting cheaper. Whereas if you combine momentum, if the stock price of a value company is turned around, then it’s unlikely that it will be a value trap because otherwise the stock price won’t be going up.

But see, that comes back to the thing that I said. You must find a strategy that you feel comfortable, makes you sleep well at night. And if you are really a bottom fisher and deep value investor, then that’s a great strategy to follow because you’ll find really, really cheap companies.

James O’Shaughnessy tested that. He said price-to-book is a great strategy, but it’s got long periods of under-performance, like 10 or 12 years of underperformance.

But if you can sit that out and you like buying these cheap companies, then good luck to you. It’s a good strategy. You’ll have good returns, but you’ll have to really be focused on having big drawdowns because it’s a single-factor strategy and you’re also not combining it with any sort of market timing. So if you’re buying those companies and the market crashes substantially, you must really believe in your strategy to be able to stick to it.

It’s going to be hard, but if it suits you, then it’s perfect for you.


Talking about the market, I know this question is probably difficult to answer, but what is your general market outlook for the next 24 months?

I don’t look at the market that way. I look for cheap companies and wherever I find them I buy them. And if I can’t find a lot of companies, then I go to cash. At the moment my own portfolio’s about 65% cash. But I’m finding a lot of really cheap companies in Japan. Small companies, €200 million companies. There’s a lot of real cheap companies there.

And governance is improving in Japan and they’re going to have the Olympic Games there in 2020. So there’s a lot of positive things in Japan as well, even though the demographics look horrible. And the country’s got a lot of debt to GDP.

So I make no forecast on the market. I buy cheap companies or companies that fit my strategy wherever I can find them. For example in the US, we’re not finding anything at the moment. So I’m not avoiding the market, but I’m just not finding anything worth buying.


I kind of expected that answer, but I just thought I’d give it a try.

If somebody had €100,000 in cash, just as an example, sitting on a bank account right now, what would you advise the person to do with it if he or she wants to invest it?

 Well, you know, first find a strategy that you feel comfortable with. The market is quite expensive at the moment, at least the US market is. But it’s been that way for the last two or three years. And even last year, I can’t remember, was it 9% return that the S&P 500 had so far this year before the drawdowns that we saw at the beginning of last week? So it’s very hard to be able to say what an investor must do.

I mean, I have 65% of my portfolio in cash, earning absolutely nothing in Euros. But that doesn’t really worry me. I’d rather earn nothing than invest in companies that are too expensive.

So first find an investment strategy that you really feel comfortable with, that’s performed well over long periods of time.

And if you have the inclination to invest in individual stocks and have the time and would like to do that, start buying slowly. Find a company that you really like. Do some research on it. And buy something every now and then. Don’t put everything in the market at the same time. Sort of ease into the market slowly until you feel comfortable. And see what happens over time because the market is expensive.

If you buy companies that are cheap in Japan, they will most likely also go down if the market tanks in the US, but maybe not that much. But who knows?

Perhaps they will because everybody loses their sanity and starts selling at any price, which happens when the market collapses.


Do you also invest in other asset classes? For example, what do you think about real estate?

Real estate with the record low interest rates is not really my thing I’m a value investor so I like to buy things when nobody else wants that. But generally I’ve stuck to equities. That doesn’t mean that you’re just investing in equities because remember, if you buy equities, you’re buying a small part of a business, right? And this business is probably invested in some other asset class.

For example, you can buy a mining company or an IT company or a pharmaceutical company. So there’s a lot of asset classes there already. And if you look at real estate investment trusts, those are equities as well. But you’re really investing in property.

For example, if you bought a few REITs that really bombed out badly after the financial crisis, you would have been invested in property, not stuck all your money into one asset, which you can’t sell very easily, but you would have bought a small part of a business that owns 200 shopping centres, or 200 office buildings, or whatever the case may be.

Even within the equity space, there’s a lot of different asset classes you can look at. And if you think in terms of asset classes, ask what asset classes are cheap at the moment.

For example, commodities are not that expensive. Utility companies are really battling at the moment with this whole change to renewable energy, away from coal and gas. And what’s going to happen to the nuclear power plants? That sort of thing.

There’s always something that’s really undervalued somewhere. And that probably relates back to asset classes. You don’t have to go out, take all your money out of the stock market and buy a property in the city where you live.


What was your most successful investment so far? Just a broad general question.

That’s a good question. And let me turn the question around :) If you ask somebody, anybody, what their worst investment was, everybody can answer that question. But I tell you, honestly I can’t answer the question of what my best investment was.


Let’s talk about the down side. What was the biggest mistake or the worst investment you made so far?

One of the largest investment losses, after which I changed my strategy, was a company which supplied shoes to Marks & Spencer in the UK. The company was very cheap and I bought some. They posted bad results after which a director bought some shares. They bought back some stock. They had a small profit warning and I bought more stock as it fell more. As it fell, I kept on buying until it was 15% of my portfolio. And then the company went out of business because they lost the contract with Marks & Spencer.

And 15% of my portfolio was lost, I think I sold close to the absolute bottom, before the company was delisted.

And after that I implemented a simple rule. If I ever buy a company at a cheaper price after I invested, I’ll only do so once and I won’t double the position. I’ll maybe put in 50% of the position. But I don’t buy a company that’s falling because I want to avoid these value traps.


So you would rather wait until the price is going up again? Oftentimes value investors are buying when stocks are falling. But are you somebody who waits until the price is rising

Yes I do I look for companies that are undervalued but have positive share price momentum. In other words, of these companies that are cheap, I look at the 20% of companies that had the biggest share price increase over the past six months because it means at least the share price is going up so there’s less of a chance that there is something seriously wrong with this business.


What do you expect investing to look like in, let’s say, 20 years from now?

Probably more computer-driven. A lot of these factor type of ETFs you’ll probably see in the market. But who knows? It may look completely different because if a bull market lasted nearly ten years as it has now. That’s why everybody thinks that a ETF strategy is the best thing since sliced bread.

But let’s see when we have a big correction, what happens to all these ETF investors.  Till now they haven’t started panicking yet. If they start panicking, who’s going to buy the stocks when the ETFs have to sell? Are they going to close these ETFs? I don’t know. Let’s see what happens.

But this whole ETF bus came along a long time ago already and now everybody jumped on it. And let’s see what happens to it. It’s going to be very interesting to see what happens with the whole ETF business.


Let’s ask something slightly different. What do you do when you want to relax and reset?

I play golf. It takes my mind off everything, because you’re just concentrating on where you’re going to hit the ball to or how you’re going to find it in the woods. And it’s nice to be outside because I sit in front of the computer most of the time. So golf is the perfect sort of balance in terms of that.


What advice would you give to your 20 years’ old self?

Find some strategy or somebody that’s had a really, really long track record of success and read what they have done. And then this person will lead you to another person and to another. Because by only learning about really successful strategies in the past can you find out what’s the best one for you to follow.

If you choose a strategy that has been successful in the past you won’t be side-tracked by things like technical analysis or broker recommendations or anything else.

Because if this doesn’t fit with one of the models of these successful investors that you’ve read about, it’s probably best to avoid these investment approaches.

Just keep reading and learning all the time. That’s what we do. I’ve been busy with investing since 1986 and I still read research papers. We help a lot of Master’s students. They come to us with ideas to test in their Master’s thesis. We help them find good ideas to test because a lot of things have been tested already and you don’t want to completely reinvent the wheel all the time. So we say, “Listen, this is an interesting idea. Why don’t you test this?”

And then we ask the students “What was the most surprising thing from your thesis, right? The thing that you didn’t expect.” By asking this we get great ideas about what things to further look at.

So to keep on with learning all the time, is a great strategy.

But find something that you like doing. If you don’t like investing, then find some sort of way to do it in a passive way so you can focus on what you’re passionate about.


Talking about reading, please recommend for me books about quant investing for the average investor.

If you’re starting out, the book by Joel Greenblatt, The Little Book That Still Beats the Market, is a great introduction because he explains it in really simple terms. That will give you a nice fundamental base to read some of the more other interesting books.

You can then maybe go to Quantitative Value, which was written by Tobias Carlisle and, I think, Wes Gray from Alpha Architect.

And then What Works on Wall Street is an excellent book, but get the last edition, because he tested a few strategies and he changed those over time. So make sure that you find the last book. I think it’s the fourth edition.


If somebody’s new to quant investing and wants to get started, what are the first steps to take?

As I said, first find a strategy that you really like, that you feel comfortable with, that makes you sleep comfortably at night. But to find the strategy, look at some of the strategies that have really done well over long periods of time and up-and-down markets.

And once you’ve found that, slowly start implementing the strategy. Don’t jump in 100% on day one. Start looking at companies that fit the strategy. Read more about them. Speak to other friends or other people that are knowledgeable in the industry. Send them an email. People are all generally very eager to help if you have a good question.

And take it in small steps. Small steps every day. Read more. Invest in one company a month until you feel comfortable. And then see how things go from there.